You have just purchased an investment that generates the cash flows that are shown below.You are able to invest your money at 5.75%,compounded annually.How much is this investment worth today?
Year Amount
0 $0
1 $1,250
2 $1,585
3 $1,750
4 $2,225
5 $3,450
A)$7,758
B)$4,521
C)$10,260
D)$8,467

Question

Quizplus · Accepted Answer

Using the formula for Present Value of a cash flow stream, we get:

PV = (1250/(1+0.0575)^1) + (1585/(1+0.0575)^2) + (1750/(1+0.0575)^3) + (2225/(1+0.0575)^4) + (3450/(1+0.0575)^5)

PV = $8,467. Therefore, the investment is worth $8,467 today. Option D is the correct answer.

You Have Just Purchased an Investment That Generates the Cash